Inequality and the Masters of Money

This post isn’t about inequality and money it’s about inequality and the masters of monetary policy. Consider Janet Yellen, her recent confirmation to chair the Fed has made her the most powerful woman in the world, the most powerful woman in world history, the world’s second most powerful person, or the world’s most powerful person depending on who you believe. In anycase, Yellen is powerful. Moreover, Yellen is married to Nobel prize winner George Akerlof. The fact that two such outstanding individuals should be married to one another is an illustration of assortative mating. Yellen-Akerlof are the 1% of the 1% and all that political and cultural achievement concentrated in one family is an example of the growth of inequality. Tellingly, one of the drivers of this inequality was greater equality of opportunity for women.

Now consider, President Obama’s nomination for Fed vice-chairman, Stanley Fischer. Fischer was born in Zambia, holds dual Israeli-American citizenship and was most recently the governor of the Bank of Israel. In all of US history there is almost no precedent for a former major official of a foreign country to become a major official of the United States. Given all the economists in the United States one might have thought that a suitable candidate could be found without this peculiar history and yet it’s not hard to understand why President Obama has nominated Fischer–to wit, I wouldn’t be surprised if everyone President Obama asked for advice on this question to told him that Fischer would be one of the best people in the entire world for the job.

Indeed, many of the people Obama spoke to, including Ben Bernanke, would have been Fischer’s students, themselves a large subset of the tiny elite of the world’s top monetary economists. Perhaps the world of monetary economics is an inbred clique, a supplier-controlled cartel. Maybe so, but I see this as part of a larger story. Stanley Fischer, rather than thousands of other nearly equally-qualified people, is being nominated to the U.S. Federal Reserve for the same reasons that large firms, compete madly for a handful of CEO’s (in the process bidding up their wages to stratospheric levels).

Consider that even in the rarefied world of monetary policy Fischer’s appointment isn’t unique. In 2012, the British appointed Mark Carney, a Canadian, to be the Governor of the Bank of England, the first non-Briton to ever hold the role. When even Great Britain and the United States find that their home-grown talent isn’t good enough that tells you that the demand for talent is immense. My favorite example of this from the business world is Sergio Marchionne. Marchionne is the CEO of Italy’s Fiat and the Chairman and CEO of Chrysler, among several other positions. He commutes between Italy and the United States, lives in Switzerland, and has dual Italian and Canadian (!) citizenship. Appointments and potential appointments like those of Carney and Fischer illustrate that the demand for talent and the winner-take-all phenomena of a globalized world are not limited to the business world.

Small differences in quality at the top have a greater impact the larger the firm, the market, or the economy. How many truly great decisions did Bill Gates make at Microsoft (compared to another plausible CEO)? I would guess that fewer than 10 decisions made billions of dollars of difference. And if Yellen-Fischer make just a few better calls than their next best counterparts, well that could easily be worth hundreds of billions.

It’s also notable that the Federal Reserve is trying to create the highest-quality team. O-ring production tells us that you maximize the value of production by matching high-quality workers with other high quality workers. In the private sector, O-ring production magnifies inequalities of talent into even larger inequalities of income. In the public-sector, O-ring production magnifies inequality of talent into even larger inequalities of power.

The bottom line is this, a common set of factors is driving inequality: equality of opportunity, assortative mating, O-ring production, increases in the demand for talent driven by the leveraging of talent through technology. The forces are similar and so are the results, the money elite, the monetary elite, the power elite.

‘How many truly great decisions did Bill Gates make at Microsoft (compared to another plausible CEO)?’

In a decade or two, Gates will be likely more remembered for a couple of things that weren’t exactly decisions –

His inability to understand what the Internet represented

His inability to understand what truly mobile computing devices represent

In both cases, his company fell far, far behind, while remaining utterly reliant on its ability to dominate an increasingly irrelevant PC based world.

Ted CraigJanuary 14, 2014 at 7:44 am

That’s common in many businesses. Henry Ford is remembered today for revolutionizing auto production, not that he refused to change his ways (e.g. only black cars) and fell behind GM in 1937.

dan1111January 14, 2014 at 8:34 am

I don’t see how they Gates can be criticized for failing to understand the internet. They released Internet Explorer quite early and bundled it free with Windows for near-total dominance of the web browser market, and they also were major early players in web servers.

The mobile revolution came largely after Gates was no longer running Microsoft.

But overall, it is true that Microsoft has been quite inept in many ways for most of its history. Furthermore, its business has consisted almost exclusively of copying other’s ideas and belatedly responding to trends. Why has it been so successful? Because of a few great business decisions that Gates made. He understood the importance and role of software before anyone else did and acted decisively on that understanding. Therefore, he set up Microsoft’s dominance for decades. I think this is an excellent illustration of Alex’s point.

UrsoJanuary 14, 2014 at 10:23 am

I think there’s a more telling lesson here, which is that the great decisions made by Gates in the late 80s did not predict that he’d make equally great decisions in the late 90s.

RoyJanuary 14, 2014 at 10:46 am

The decisons made in the 1980s gave Microsoft a very long way to fall, most of today’s winners would love to be even Microsoft, even the 2014 version.

maveryJanuary 14, 2014 at 1:14 pm

This, IMO, is the key flaw with Alex’s argument.

When you start talking about CEOs and the like, the competition isn’t over who the best decision maker is. It’s over who people whose previous decisions have turned out well. The assumption that this is predictive of future performance is dubious and to my knowledge hasn’t been demonstrated adequately.

The reality is there is tons of uncertainty baked into these hiring decisions. If someone excelled as a CEO at one company/industry/working environment/point in history, we (reasonably) believe they’re more likely to be good at the next company/industry/working environment/point in history, but that’s not necessarily the case. Its easier to pretend like we do know and its more aggrandizing to attribute that success to individual, repeatable, heritable talent than it would be to acknowledge the inherent randomness and nonrepeatability of decisions, so that’s what we do.

Alex is correct that competition is fierce for top talent, but he doesn’t address how we evaluate that talent and the uncertainty surrounding our evaluations.

maveryJanuary 14, 2014 at 1:19 pm

Though strictly speaking, I suppose Alex is making the point that inequality is rising, not that it “should” or that these behaviors are rational.

bobJanuary 14, 2014 at 10:15 am

Eugene Farma won the msot recent Nobel Prize for the efficient markets hypothesis. One of the things that research on this hypothesis has shown is that equity fund managers who beat the market in one year do not generate higher returns, on average, in future years. There for is is more profitable to buy index funds than pay a high managment fee to an investment manager who has beat the amrket, becasue it is unlikely that this success will continue.

If in fact successful CEO’s are being paid so well to basically make a few key decisions then the efficient markets hypothesis would tell us that companies should not pay extravagent sums to CEO’s. While someone may have made a few brilliant decisions in the past, like Bill Gates, can they replicate those decisions in the future?

AIGJanuary 14, 2014 at 10:29 pm

No, the efficient market hypothesis would not necessarily tell you that. It applies if there is an efficient market related to how information is processed, which you may see to a relatively high degree in the stock market. When it comes to CEOs, and firm strategy in general, there most surely is nothing resembling an “efficient market” because firms try to do precisely the opposite: hide information that leads to competitive advantage from competitors or the market.

derekJanuary 14, 2014 at 10:25 am

What Bill Gates recognized was the need for a steady source of cash flow upon which to build. Not rocket science, but in the ever changing high tech it gave them an advantage that no one else had. He had to just starve any competitor.

What the internet and mobile did was remove the ability to starve, and the products had to compete on their merits. And the fact that both those things opened your software to the world; you could no longer throw together a V1.0 that would freeze the market and dry up funding for competitors. All it did was enable machines as disease vectors in a connected world.

The edifice he built was remarkable. It has long been known that the best way to avoid desktop insecurities is to avoid using any outward facing microsoft products, yet they maintained dominance for far longer than they deserved.

Yes, Apple is a special case – it almost failed several times, and if it wasn’t for a lot of Microsoft support, probably would have gone under. But do note that point – it was Microsoft that essentially kept Apple afloat, since it did not really view Apple as a competitor. Instead, it needed to someone to point to as a competitor – and Apple was available. Until Apple ceded the desktop to Microsoft – because the people running Microsoft were unaware of just how innovative products like the iPod, the iPhone, and the iPad have shown that Microsoft is pretty irrelevant in this decade.

Anyone who thinks that IBM was almost starved by Microsoft has an extremely PC-centric view of the computer industry. As for OS/2? One of the first major examples of just how Microsoft would treat anyone that partnered with it, including forcing PC manufacturers to pay for a Windows licence – even if OS/2 was installed on the PC, and not Windows. Much like how Microsoft would not allow a PC manufacturer to sell systems with Windows, and systems without Windows – back in the 1990s, Microsoft essentially forbid anyone from selling PCs without Windows.

That is starvation, by the way.

Didn’t work with tablets, though. Or phones.

TomJanuary 16, 2014 at 4:21 pm

Apple not starved? Wikipedia:

“At the 1997 Macworld Expo, Steve Jobs announced that Apple would be entering into a partnership with Microsoft. Included in this was a five-year commitment from Microsoft to release Microsoft Office for Macintosh as well as a US$150 million investment in Apple. As part of the deal Apple and Microsoft agreed to settle a long-standing dispute over whether Microsoft’s Windows operating system infringed on any of Apple’s patents. It was also announced that Internet Explorer would be shipped as the default browser on the Macintosh, with the user being able to have a preference. Microsoft chairman Bill Gates appeared at the expo on-screen, further explaining Microsoft’s plans for the software they were developing for Mac, and stating that he was very excited to be helping Apple return to success. After this, Steve Jobs said this to the audience at the expo:

If we want to move forward and see Apple healthy and prospering again, we have to let go of a few things here. We have to let go of this notion that for Apple to win, Microsoft has to lose. We have to embrace a notion that for Apple to win, Apple has to do a really good job. And if others are going to help us that’s great, because we need all the help we can get, and if we screw up and we don’t do a good job, it’s not somebody else’s fault, it’s our fault. So I think that is a very important perspective. If we want Microsoft Office on the Mac, we better treat the company that puts it out with a little bit of gratitude; we like their software.

So, the era of setting this up as a competition between Apple and Microsoft is over as far as I’m concerned. This is about getting Apple healthy, this is about Apple being able to make incredibly great contributions to the industry and to get healthy and prosper again.”

john personnaJanuary 14, 2014 at 10:28 am

In the early years Gates fought like a Robber Barron. This somewhat blind-sided players who were in it for love of the tech or the purity of design. I say “early years” but MS was so in that mold that, as you may recall, they actually had the balls to fake evidence before the US Supreme court (edited video, internet explorer removal).

We are damn lucking that Apache blindsided them, on the server side, and ensured open Internet standards.

Bill Gates III’s father was a major-league antitrust lawyer defending big corporations, so the son was one of the few 20th Century Americans to grow up hearing around the house all about the wonderfulness of being a monopolist. Thus, he had his eyes on the prize from a ridiculously early age, helping him, for example, write his contract with IBM for the QDOS operating system he’d just bought for $100k to give his tiny little company a stranglehold upon the personal computer market.

RahulJanuary 15, 2014 at 6:58 am

IBM was an innocent babe in the woods? Takes a monopolist to beat a monopolist.

Dan WeberJanuary 14, 2014 at 11:09 am

What is Carnegie known for these days?

prior_approvalJanuary 15, 2014 at 1:27 am

‘How to Win Friends and Influence People’?

Carnegie Hall?

Carnegie Mellon University?

OK, two out of three isn’t that bad.

GabeJanuary 14, 2014 at 4:24 pm

Ben Bernanke was horrible at calling the housing bubble…it should count as a mark against him AND his teacher.

Gates primary failure was selecting the escape character as a directory separator. So while it may be inconvenient for a typical user to type one ‘\’, a programmer on that platform must use two. The first escapes the second. I like to think it was a practical joke but more likely, he wanted to be the anti-UNIX.

RahulJanuary 14, 2014 at 8:05 am

The unsaid assumption here is that it is indeed talent and not some irrational expectation of superior performance.

To me, it’s not at all obvious whether the stratospheric salaries of CEOs are matched by superhuman performance. You are making a leap from an observation to a justification. And post hoc a lot of egregiously performing CEOs had also started off with equally gargantuan salaries.

BehrsJanuary 14, 2014 at 8:53 am

“The root of all superstition is that men {& economists ?} observe when a thing hits but not when it misses.”
—————– Francis Bacon (1561-1626)

AlJanuary 14, 2014 at 10:52 am

Yes. I agree completely. It seems to me that the main thing this post gets right is calling the elite society of leaders “inbred.”

Also, Bill Gates is not an appropriate comparison to make in Alex’s argument. It’s not like Microsoft went on a big, expensive executive search, located Gates, and then offered him a huge compensation package.

Furthermore, the giants back then, Xerox and IBM, didn’t exactly look at Bill Gates and say, “Hey, this guy is a genius businessman with a keen insight into the future of software.” They did not pursue him to lead their companies either.

Because outsiders never get promoted to these positions, we don’t really have a valid experiment here. We simply don’t know if the “bottom 99.99%” contains any highly superstars who could outperform a Yellen or a Fischer. They never get a chance to try the job. But, we do know, for example, that Steve Jobs (not originally a member of the “top 1% of the top 1%” of CEOs) could handily outperform a John Sculley (who was an elite CEO).

Another issue is that Stanley Fischer is 70 years old. (Yellen isn’t much younger.) Is he still in his prime? As Alex implies, there is a whole network of people invested in telling us what a genius Fischer is. If he is slipping with age, can we confidently rely upon them to tell us?

“I’d wish you luck, but I believe luck is a concept created by the weak to explain their failures”

-Ron Swanson

Alexei SadeskiJanuary 14, 2014 at 3:05 pm

Non sequitor.

Either belief – “talent” or “irrational expectation of talent” – would work. It doesn’t matter which.

raywardJanuary 14, 2014 at 8:09 am

Inequality is a good thing, until it’s a bad thing; it’s excessive inequality, and the financial and economic instability that follows, that is concerning. Excessive inequality is self-correcting, but unequally smart people like Bernanke, Yellen, and Fisher know how to avoid (or mitigate) the self-correction, which isn’t a bad thing since the self-correction is painful and shared by everyone (though unequally, as those with most of the income and assets bear more of the correction). This strikes me as ironic: unequally smart people who are equally concerned about excessive inequality but whose main task is to prevent inequality from self-correcting.

BillJanuary 14, 2014 at 8:27 am

Small difference in quality of the individual OR small differences in the networks one has.

I think there is far more to be explained by networks than just explained by ability, holding ability constant.

Just look at the post: Yellen linked to Ackerloff–probably met each other in school, or at work, and Ackerloff picked her because she was cute, or whatever. Both have rich networks. One is the student of Fisher, as is Bernanke….

Imagine now that Fisher didn’t exist as a link, or that neither attended MIT, and that both had the same abilities after attending separate Ivy schools.

To the extent that networks are formed, not based on ability, but proximity, and the proximity is determined by access to institutions, which is partially determined by income…where do you think inequality may come from in a networked system.

Government at the highest levels is particularly affected by networks. Presidents are in office only 4 to 8 years. They have to put together teams to solve problems, quickly, and there has to be trust among team members. People who know each other, trust each other. That doesn’t mean they are the best at what they do, but that they have a network linked with trust that brings them in.

Ask yourself: has your network ever been important to you?

o. nateJanuary 14, 2014 at 11:02 am

Excellent point. On the one hand Alex is arguing that nominating non-citizens or dual-citizens to such high posts indicates an increasing premium on raw talent, such that governments are willing to go outside their usual comfort zones in hiring. On the other hand, he remarks on the narrow and incestuous world of elite economics programs from which these nominees are drawn. It seems there is a contradiction here.

wikiJanuary 14, 2014 at 11:29 am

It’s only a contradiction if one adheres to some sort of idealized platonic standard of merit. In the real world, merit is inevitably tied to networks. To show that there are problems in the world (and there are many) you need to explore why the existing networks are inefficient, why they can’t be overturned, and why the talent that emerges that exploits those networks are patently worse than the talent that does not have those networks. All of these issues may be present in economics and finance (in fact I suspect they are) but you also need to ask why most other successful economies can’t avoid these or similar network problems. This suggests that there is something fundamental about what these networks do that is valuable to societies even if they have toxic, stupid, rent-seeking, inefficient, or what have you effects. Or else we’re saying that the costs of beating those societies only works out in the very long run. It sometimes takes decades for companies with better ideas to beat out the leaders, so one could argue that it might take decades or even centuries for countries to emerge with both more efficient networks and no countervailing inefficiencies that don’t offset their advantages on these margins.

o. nateJanuary 14, 2014 at 11:35 am

I agree that in the real world things are not so simple as idealized merit vs connections/cronyism/etc. I just think it’s good to counterbalance these kinds of narratives that say that increasing inequality rewards raw talent. It’s equally true to say that increasing inequality rewards good connections, but that is often overlooked.

IVVJanuary 14, 2014 at 1:57 pm

“Ask yourself: has your network ever been important to you?”

No, not really. I keep wondering how it can. I’d have said I have a decent network, but now…

BillJanuary 14, 2014 at 2:42 pm

You can be in a network, but not be central in it. Think of ways to increase your centrality by reaching into other networks which have fewer links to yours. http://en.wikipedia.org/wiki/Centrality

IVVJanuary 14, 2014 at 4:22 pm

I sincerely have no idea what you mean by any of that.

BillJanuary 14, 2014 at 10:21 pm

There is a great Coursera course on social network analysis by Lada Adamic; you can take a much harder one by Matthew Jackson at Stanford. I’ve been using some of the network analysis stuff for a pricing course later this spring.

As to what I said: its basically this: you can, and do, have a network–everyone does. It’s friends, colleagues, etc. You can have many people contact you, and you can know many people as well…but, that doesn’t make you central. What gives you more power in the network is if you are a bridge to others who don’t know each other, if you are very close to someone who is influential, etc., all of which have measures of centrality, which measure your influence in the network. So, when I said, improve your centrality, think about being a bridge, for example, between subgroups, or developing a reputation, for example, as an early adopter or reviewer that people turn to.

IVVJanuary 15, 2014 at 9:55 am

…Ironically, I know Lada Adamic personally.

IVVJanuary 15, 2014 at 10:13 am

I suppose the thing I see is that I have many different highly disparate subgroups in my network–high school friends aren’t college friends aren’t grad school friends aren’t business contacts aren’t online hobbyists. But they have very little call for each other within my network. An artificial pumping of connections between the groups would increase my centrality, but it’s not the sort of behavior I enjoy.

I believe that’s the issue with social networks–certain people have proclivities to building and improving their position within networks. I’m not one of them, and I don’t feel like I would like to be the person who would.

anonJanuary 14, 2014 at 6:14 pm

Bill, point taken that networks are important … economists do have a tight network too. Yellen met Akerlof in the Fed cafeteria aww … serendipity story: http://www.reuters.com/article/2013/09/29/us-usa-fed-yellen-idUSBRE98S07N20130929 Neither are so connected (I think) to Fischer “network” in money/macro, so the new work pairing makes even more sense. Tight (or closed) networks can often boost efficiency but it can be very very bad at times when new insights are needed. It is a balancing act.

It is not so much that there are no alternative just as good but that there are fewer doubts about these well known stars. One thing that drives this is that their compensation is a small part of the money you stand you loose if mistakes are made. S&P 500 top executive compensation is less than 5% of profits and so is not a great place to look savings.

CyrusJanuary 14, 2014 at 8:47 am

If the number of high stakes decisions in an executive career is small, then the pool of candidates who have always been right before contains people who made every one of those high stakes decisions by luck.

RahulJanuary 14, 2014 at 12:14 pm

Great point. In other words, does past performance of highly paid CEOs correlate well with future results?

What’s the empirical answer on this?

Jamie_NYCJanuary 14, 2014 at 7:58 pm

Or, you can look at it in another way: how many games do NBA players win on average? 50% – that’s pitiful! And there are many thousands of people ready to play in the NBA for much less than the current crop commands. So, why not just replace them?

My point is that, as poorly as many of the CEOs perform, the field of potential hires is very, very limited. You need a set of skills and industry knowledge that take years (decades) to acquire. For their day-to-day decisions, it’s almost like for chess grandmasters: I look at a particular move, and I can justifiably say: “I could have done that.” But, is it true?

It is funny that you compare NBA players, who are in a union and collectively bargain their wages, to CEOs, but, in the end, the comparison works. While it is undeniably true that there are many thousands of competent players who would be willing to work for less than those currently on NBA rosters, the minimum payroll requirements and the maximum salary rules contained in the CBA essentially mandate that the handful of stars who really make a difference in the NBA be grossly underpaid and that the role players who are frequently quite replaceable be grossly overpaid. So, in other words, the unionized NBA does operate very similarly to the corporate world: the typical player — like the typical CEO — is grossly overpaid and the handful of irreplaceable high performers are grossly underpaid.

RahulJanuary 15, 2014 at 3:20 am

Speaking of “industry knowledge”, do CEOs stick to an industry sector usually?

Yog SothothJanuary 14, 2014 at 8:47 am

Why are these factors more important now than in the past? You’re explaining some inequality but not the recent increase in inequality.

chuck martelJanuary 14, 2014 at 8:50 am

The revered and highly paid central bank wizards have a very limited set of options available to attain their goals. It isn’t like they’re developing cold fusion or even marketing a new brand of breakfast food. Further more, since the sensory input of even the most talented humans is limited to their waking hours, these superstars are compelled to rely on the opinions of others further down in the hierarchy in making their decisions. Their obscene compensation isn’t related to their ability to come to a unique analysis of a complex situation, it’s simply the reward given to those that reach the top of the pyramid.

His rewards will come later when he hits the lecture circuit, “consults” for one or more Fortune 500 companies, and/or writes a tell-all book about where Geithner’s skeletons are buried.

djmJanuary 14, 2014 at 1:37 pm

Greenspan doesn’t seem to have done this too much. I think that the hit to one’s prestige is not worth the income, especially when one is already wealthy enough to not really care too much about money anymore.

dead seriousJanuary 14, 2014 at 1:58 pm

If “celebritynetworth.com” is to be believed – and why shouldn’t it be?! – Bernanke is worth $2M. Not exactly wealthy at his age. Unless you know something about his financial status that indicates he really is wealthy, your statement doesn’t stand.

Greenspan, on the other hand, is quite a bit wealthier *and* it’s clear that his legacy is about the most important thing in the world to him. I don’t know Bernanke, but he hasn’t come off that way.

Bernanke just left his government job a couple of weeks ago. He’ll do okay for himself on the Free Market in years to come.

For example, upon leaving his IMF job in 2001, Stanley Fischer signed a contract with Robert Rubin and Sandy Weill of Citigroup providing him with minimum compensation in 2002 of $2 million, with lots of upside.

RahulJanuary 15, 2014 at 12:34 am

It’d suck to have to wait to be 65 to make your money when there were faster ways to make it.

If money was what they were after.

WuJanuary 14, 2014 at 8:56 am

What a word salad. Alex trying too hard.

Bill NJanuary 14, 2014 at 9:04 am

The narrative is compelling, but strikes me as retrospection bias. Are we selecting the winners because they were winners? (I am reminded of a criticism of “Good to Great” )What is the sample from which we select the winners to be observed and what is the control? How are we at predicting those winners and how do the winner’s skills transfer to new jobs? For a humorous take on this process, see the scene in “Moneyball” with Billy and the scouts around the table.

By analogy, a pro quarterback’s success is hart to predict until they are in the NFL. The sliver of skill needed to read and react to a defense in real time cannot be tested until facing the speed of a pro game. Once there, however, the skills needed to be successful are fairly visible and until the skills degrade, success will tend to follow. Does success really follow CEO’s?

RyanJanuary 14, 2014 at 9:08 am

So if these people are such great geniuses, why has the country been going to shit under their watch compared to when the country was run by WASP men and these people were back in the shtetl?

EdJanuary 14, 2014 at 9:21 am

They’ve usurped power from a powerful group of people that has dictated world events for a couple of centuries without firing a single shot. Say what you want but that’s pretty impressive intellectually speaking.

Whether the country actually benefits from their genius is of no consequence to them since their loyalties lay elsewhere (Israel for some, a utopian state for others).

Ak MikeJanuary 14, 2014 at 1:33 pm

So, Ryan, these wonderful WASP men of whom you speak – they’re the ones who gave us World Wars I and II and the great depression, right (not to mention the Civil War)?

peterikeJanuary 14, 2014 at 8:32 pm

You really don’t know who was behind WWI and II, do you? Or, for that matter, the Depression.

Marian KechlibarJanuary 15, 2014 at 9:30 am

Ah, those Whiteness Studies.

Morgan WarstlerJanuary 14, 2014 at 9:10 am

The marriage story messes it up. It dilutes the tea.

Bill and Hillary, that’s my example.

Genius talent? Bill is the proof.

Hillary is the proof there’s too much allowed in that isn’t genius talent.

BillJanuary 14, 2014 at 9:30 am

Thank you.

WillittsJanuary 14, 2014 at 11:18 am

The marriage story IS the tea.

I’ve looked through her CV and I don’t see anything extraordinary. All the papers she published in top journals also had her husband’s name on it. Many of her pubs are puff pieces. Like many luke warm academics, she took the administrative route.

She isn’t half the economist that Romer is. She has good pedigree but few real accomplishments outside of glad-handing jobs.

Seriously, what makes her qualified for this position? I know Bernanke and Greenspan’s experience.

She is joining the ranks of those who married into success: Hillary Clinton, Elizabeth Warren, Teresa Kerry, etc. Tell me why I shouldn’t see her as anyone other than Ackerlov’s wife?

FTFYJanuary 14, 2014 at 6:24 pm

“Seriously, what COULD make her MORE qualified for this position?” … you don’t even get a link for that, Google it.

YMJanuary 14, 2014 at 9:16 am

I love this kind of blind justification of inequality: For all sorts of reasons, those that have more deserve more, even if the difference in talent is so small it cannot be observed, you have to believe it!

Don’t get me wrong, I believe that we live in a meritocracy, If you define merit broadly enough. So what if most high power positions go to politically savvy and well connected people. Why is that less impressive or more arbitrary than being a high achieving academic or weight lifter?

what is crystal clear is that merit (and imperceivable differences in talent) is used as power justification, and this is not a bug but a feature of the concept.

lxmJanuary 14, 2014 at 12:13 pm

“…you have to believe it!….”

+1

DanCJanuary 14, 2014 at 9:16 am

assortative mating has always gone on. Look at Abigail and John Adams. It is easier today for women to get credentials and training but basic intelligence hasn’t changed amongst elites.

Risk aversion explains some of the selection of CEOs. Look at NFL football coaches. Networks are important but owners are often reluctant to try unknown coaches. Why? If an unknown coach fails the owner was stupid. If a known coach, a brand name coach fails, the coach takes more blame (unable to adjust to changing times, etc). Just as once upon a time companies bought IBM computers because it was perceived as the save choice (and left bigger margins for IBM).

I would but Bill Gates in a different category. People who start and build companies are not the same as the CEOs who come in to run companies. An entrepreneur who has a market insight that they exploit is not the same as a manager CEO. Steve Jobs could do both and add value but that is rare.

Success is often a combination of time, place, luck, and personal attributes. If they all line up you are praised. If not well….. For example if you graduate during a boom period your career can start off on a high trajectory one that can lead to you surpassing equally skilled competitors who graduated ahead of you during a bust period. The paths may never cross again just because of when independent events happened.

Harvard graduates have high incomes because for many the connections that help you get into Harvard are the same connections that lead to high incomes.

I always felt that people like Ted Kennedy so favored affirmative action because 1) it was good politics with some groups and 2) the positions he and his friends held were the result, in no small part, to connections that had nothing to do with intelligence or character.

DJKJanuary 14, 2014 at 9:34 am

A very interesting subject.

As others have said, it’s not obvious what’s different now to forty years ago.

“Small differences in quality at the top have a greater impact …” But a central banker or CEO is not a superhero. As far as I know, most top people have the same number of waking hours and arms and legs as the rest of us. All that a CEO can do is to choose between different courses of action as presented by people lower down in the organisation. And generally, the choices will be presented in such a way, or circumstances will be such as to make the outcome pre-ordained.

Any organisation that really requires the services of a superhero to run it is (a) very badly designed indeed and (b) bound to fail sooner rather than later because actual superheros don’t exist outside of the pages of a comic book.

FinchJanuary 14, 2014 at 9:43 am

A lot of the commenters seem to think CEOs just go around making a few key decisions, and that’s their value add. That isn’t my impression. CEOs I’ve known are mostly talent developers. They’re basically there to guide and develop subordinates who will present them with the right ideas and frame the options, so when it comes to decision time, they’ve got a lot of good stuff to work with.

But most of the effort is spent in the years leading up to that, not in the moment in some conference room.

BB’s value add is not in the decision to go for it on 4th and 2, it’s in developing a game plan that works with his talent, and talent that works with his game plan.

PopeyeJanuary 14, 2014 at 11:11 am

Often companies have a CEO is more of the “face” of the company and a COO who is more responsible for making sure it runs smoothly.

tedmJanuary 14, 2014 at 9:45 am

IMHO, a lot of commenters seem to have missed the point. The marriage component is the key, not the distraction. Assertion – greater opportunities for women to excel in labor markets, combined with a tendency for women to try to select mates with high prestige, leads to greater inequality. Might be true, might be false. Maybe women in the aggregate don’t have that tendency. Or, maybe some behavior by men in the aggregate counteracts it. But that is the question on the table, not whether high prestige males like Bill Gates make better decisions than the next best CEO candidate.

Remember, most measures of inequality are focused on income inequality (market-based). By definition, the willingness and ability of married women to work outside the home (at all income levels) affects that measure of inequality. The selection criteria of women who are very successful in the market in choosing their mates (if the criteria includes factors correlated with income, for example), should affect measured inequality. Similarly, if (when?) poor households are (were?) more likely to include women who worked outside the home, that would also affect measured inequality – perhaps in the other direction.

jzJanuary 14, 2014 at 10:11 pm

^^this^^
the synergy between Yellon/Akerlof is greater than the sum of the two.

the dysergy between males and females at the parasitic end of character spectrum lowers them into chaos.

AndrewLJanuary 14, 2014 at 9:54 am

Okay honestly, how much genius do you really need to move or not move the fed interest rate a quarter point? Isn’t that all the fed does?

whatsthatJanuary 14, 2014 at 10:27 am

Who knows? This uncertainty drives people to hire more genius people.

derekJanuary 14, 2014 at 10:33 am

It isn’t genius. It is perceived genius. If Yellen says that interest rates are going to be a quarter point higher tomorrow, how does that occur? It is because she is perceived to be powerful and all knowing.

The last 5 years have been interesting. If you went against the Fed you lost money.

One of these days someone will make money going against them. Then Yellen, Fischer, all these big wonderful names will be laughed at.

Once again, we see that Pat Buchanan and those crude, unsophisticated haters were right decades ago when they railed against the emerging global elites. Pretty much all of the things the paleos said in the 1990’s are coming true. The people who rule over us have no more connection to us than a Zambian college professor, but here we are anyway.

Stanley Fischer was hired for his last job by Prime Minister Ariel Sharon and Finance Minister Bibi Netanyahu. How can anyone imply that Sharon or Netanyahu have ever displayed the slightest ethnocentric bias?

I think if you are a middle-class citizen of a Western country, it is a little easier to have loyalty to your rulers if they are like you and at least pretend to share your interests. The counter is the rulers fighting amongst themselves is terrible for the people who are either victims of war or the instruments of war. The counter to that is global colonialism is sure to end up the same way old fashioned colonialism ended – a bloodbath.

Regardless, I find it interesting that all of those cranky old white guys have been proved right. That should give guys like you pause before rushing off into the utopian future, but learning from the past is not part of the fanatics tool set.

PopeyeJanuary 14, 2014 at 12:16 pm

Not exactly sure what was “fanatical” or “utopian” about my comment, it seems like you are bringing a lot of baggage into this discussion. Here’s a clue, the old elites weren’t “ONE OF US” either. All you are advocating for is for elites to build and maintain loyalty from their subjects by shitting on “outsider” groups.

BlutoJanuary 14, 2014 at 1:17 pm

There were so few “old elites” that as a percentage of population they were easy to disregard. The CEOs of old weren’t paid so differently from ONE OF US. The old elites had less power over the country and its politics.

You could even say that the old elites were less important to running the country than the old middle class. The old elites maintained the stability of the nation. The new elites will inspire the revolution.

Alex, a very interesting analysis but a minor correction: the correct spelling of his surname is Fischer, given the Germanic origin of the name among Jews.

Petr AkuleyevJanuary 14, 2014 at 10:44 am

Be careful. Alex is bending over backwards to avoid the obvious connection between Yellen, Akerlof, Bernanke and Fischer. I don’t think this is a sinister Jewish conspiracy – but I do think we are talking about a small group of academic/government types who judge merit, even if unconsciously, by certain shared cultural and personality characteristics and promote within. “Inbred clique” and “supplier controlled cartel” is probably perfectly fair.

WillittsJanuary 14, 2014 at 11:26 am

The ranks of economists in general swell with Jews. This doesn’t play well with the ZOG crowd, but I never concerned myself with what those dolts think.

I was born Jewish and went to law school like a good little cliche. I didn’t like the job and ended up in finance, another cliche.

I’m less concerned with Yellen’s religion and ethnicity and more concerned about her lack of serious credentials. I also don’t believe Summers was ever seriously in the running – it was a head fake so this liberal darling could escape scrutiny.

RahulJanuary 14, 2014 at 12:22 pm

Not just economists. Ranks of Physicists, chemists, musicians swell with Jews too. It’s silly to think its an evil conspiracy or cronyism though. These simply are extremely talented guys. I just observe it as a statistical fact with roots too deep and long and leave it at that.

WillittsJanuary 14, 2014 at 5:23 pm

Well yes, but a physicist, chemist or musician is hardly qualified to run the Fed.

Or maybe that would be an improvement. No pretense about knowing what he is doing.

That Nobel Prize winner who ran the Department of Energy into the ground proved that scholars often make poor administrators.

Stanley Fischer on Wednesday dismissed the idea that he would become finance minister, but did not discount a role in the Foreign Ministry.

Outgoing Governor of the Bank of Israel Stanley Fischer has no intentions of leaving Israel – or its public life – and at a news conference on Wednesday, he said just that.

“I will continue to be involved in the country’s public life. Israel is my second home and I’m not sure that it’s less than first,” Fischer, who announced Tuesday that he would resign from his post this coming June, said at the conference.

Fischer rejected any suggestion that he would accept the post of finance minister in the next government but did not say he would turn down a chance to lead the Foreign Ministry.

David BleyJanuary 14, 2014 at 10:26 am

As far as CEO’s are concerned, I believe that we ascribe more contribution than is actually warranted. Their knowledge and ability is certainly partially responsible for the company’s success, but most of the successes that they are lauded for are accidental – not possible to predict.

I believe that Microsoft’s software business model is not sustainable. In order to maintain a continuing cash flow from that business unit, they have to adopt tactics which force their customers to continuously upgrade software which does not have significant benefit over what they already own. In order to do this, legitimate customers are burdened with software that has to be constantly relearned, they are forced to purchase new hard ware since the latest version will not run or runs poorly with the previous versions adequate hardware. They have created a system which is nearly impossible for the normal user to maintain when there is some system issue. I use Microsoft operating system (XP) because some of the other software (tools) that I use only run in Windows but I do not like how I am treated as a Microsoft customer. I am seriously investigating moving the PC’s in my home to some version of linux as I have no intention of moving to Win8 or whatever the version will be tomorrow. Ultimately, the product has to serve the needs of the customer, not the needs of the company.

If it ain’t sustainable when are we going to witness its death pangs? Not yet for sure.

HadurJanuary 14, 2014 at 10:27 am

Bringing in an advisor from another country has no precedent in US history, but has a very long history in Europe. Name a successful European monarch, and I can almost guarantee you that he had at least one prominent advisor from another country.

One of my favorite examples is Eugene of Savoy. Born a bastard in Italy, he sought service with the French army and was denied because of his illegitimate birth. So he joined the Austrian army…and won a string of crushing victories against France. The Russian Tsars, especially Catherine the Great, were fond of using generals and advisors from Scotland, temporarily making Russia a prime destination for Scots who did not wish to live under English rule. (The best Austrian general in the War of the Austrian succession was also a Scot). And when Transylvania was an independent country from roughly 1526 – 1689, the princes of Transylvania made out very well by bringing in advisors who had been kicked out of other countries for having heretical religious views: Transylvania was the first European country to adopt complete freedom of religion and was a refuge for early Unitarians.

Of course, for much of their history, both Poland and Hungary had an elected monarchy where many foreigners were elected king. Three of the greatest elected kings of Poland were a Hungarian, a Swede, and a German by birth.

The idea that high-ranking officials should be of the same nationality as the hoi polloi is obviously intimately connected to the idea and reality of the nation-state. Before the nation-state, heads of states (i.e., monarchs) were commonly immigrants, and the same of course applied to their courtiers. The elites used to be loyal not to a particular nation but to a cosmopolitan elite class and the highest bidder. Today’s emerging class of post-national elites simply marks a return to those bad old days.

The right to rule was based on genealogical descent in feudal Europe. Thus during the 100 Years War, kings of England routinely wandered around France fighting French rulers to claim thrones and dukedoms based on complicated genealogical arguments. Joan of Arc was an early proponent of the modern concept of territorial nationality, telling the Englishmen to go home to their own island and leave the French alone.

The French then developed a policy against dynastic marriages with foreign princesses: the royal family had to marry other French people. The Venetian ambassadors credited this policy with making France the foremost nation-state of Europe.

georgesdelatourJanuary 14, 2014 at 9:27 pm

Marie Antoinette was an Austrian Habsburg. But that didn’t work out so well, so point taken.

Although I don’t have time to look up examples now I believe in the late 19th and early 20th century it was common practice for dying empires (Ottoman, China specificaly) to hire many foreign officials (from the UK, Germany, etc.) to run their affairs (especially customs offices and banking institutions). All the better for th European powers to loot these nations.

It’s funny how so much of this “great new world of globalized, talent-driven economics” seems just to be nothing more than a farcial repeat of so many bad old ideas of history.

The French hired a Corsican to rule them, the Russians a Georgian, and the Germans an Austrian.

Peter the SharkJanuary 15, 2014 at 3:57 am

It sounds good, but Hitler actually was “German” in the ethnic sense. Until 1871 “German” was basically an ethnicity, “Prussian”, “Rhinelander”, “Austrian”, “Bavarian”, “Bohemian”, even “Transylvanian”, were geographical concepts that did not preclude one from being simultaneously “German”. A lot of Hitler’s support derived from the fact that until 1945 most ethnic Germans, no matter where they lived in Europe, felt they were part of one nation.

georgesdelatourJanuary 15, 2014 at 6:57 am

“It sounds good, but Hitler actually was “German” in the ethnic sense.”

In that sense, David Cameron and Tony Abbot would be considered Americans.

I still think Steve Sailer’s point stands. The USA has a natural-born-citizen clause which prevents the Austrian-born Arnold Schwarzenegger from running for President. If the Weimar Republic had had a similar clause for German Chancellor, the Austrian-born Hitler would have been ineligible.

The crucial question is, was Hitler loyal to the Weimar Republic he became Chancellor of? The only possible answer is NO. The fact that he came from outside its territory, and wished to dissolve it into a larger German imperial state, was part of the reason he destroyed it.

Hitler’s antisemitism was very specifically Viennese, directly inspired by the mayor of Vienna, Karl Lueger.

During WW2 and after, the evils of Nazi Germany were often attributed to “Prussian militarism” – as if the death camps and the crazy attempt to conquer Russia were simply an exaggeration of the statecraft of Bismarck. In fact, it was the remnant of the patriotic Junker class who organised the failed Operation Valkyrie to kill Hitler.

GiTJanuary 15, 2014 at 7:30 am

If Weimar had had the same sort of natural citizen’s clause as the US, considering Weimar was created in 1919, Hitler wouldn’t have had a problem. But “Germany” wasn’t anything other than a ‘dissolution into a larger German imperial state.” There was no German nation until the German Empire, and when that empire was bounded, its borders were a function of what Prussia had been able to conquer by that point, not some limit to who was and wasn’t German/Germanic.

georgesdelatourJanuary 15, 2014 at 8:05 am

GiT – “If Weimar had had the same sort of natural citizen’s clause as the US, considering Weimar was created in 1919, Hitler wouldn’t have had a problem.”

Hitler combined the worst of Austrian imperialism and German nationalism.

georgesdelatourJanuary 14, 2014 at 10:34 pm

“Three of the greatest elected kings of Poland were a Hungarian, a Swede, and a German by birth.”

You don’t mention the French king of Poland, Henryk Walezy (later Henry III of France). He only stayed in Poland for two years. Then he discovered he’d inherited the French throne, so he ran away from Poland, leaving the country without a king, and showing where his real loyalties lay.

The Swedish connection with Poland wound up dragging Poland into a whole series of disastrous Swedish family wars. Poland’s first Swedish King, Sigismund III Vasa, was a Catholic, and this led to him losing the throne back in Sweden to his Protestant uncle.

As Wikipedia notes:

“Many historians believe that Sigismund viewed Poland only as a tool that would allow him to eventually regain the throne of Sweden… While Sigismund never managed to regain the Swedish throne, his personal ambition to do so did succeed in provoking a long series of conflicts between the Commonwealth [of Poland-Lithuania] and Sweden and Muscovy. While the Commonwealth Sejm managed to thwart many of the plans of Sigismund (and later of his son, Wladislaw), the Vasa dynasty nonetheless succeeded in partially drawing the Commonwealth into the Thirty Years’ War. The conflict with Sweden, combined with wars against Ottomans and Muscovy, culminated well after Sigismund’s death in the series of events known as The Deluge, which ended the Golden Age of the Commonwealth.”

georgesdelatourJanuary 14, 2014 at 11:28 pm

The German Kings of Poland, Augustus II the Strong, and Augustus III, were also bad rulers, and for the same classic reason: divided loyalties.

In order to become King of Poland, Augustus II converted to Catholicism. But his wife refused to convert. She refused to attend his coronation in Poland or even to live in Poland, but stayed behind in Dresden until she died.

Through a series of disastrous wars Augustus II succeeded in turning Poland first into a vassal of Sweden, then of Russia. When he died, his son, Augustus III, was installed as King of Poland by the Russian army.

Augustus III was conspicuously uninterested in the country he was king of, spending less than three years of his thirty year reign actually in Poland. He appointed a German viceroy, Heinrich von Brühl, and spent most of his reign in Dresden enjoying the Opera.

IVVJanuary 15, 2014 at 10:32 am

Dresden opera is damn good.

Augustus II is a particularly interesting case, because he’s reviled in Poland, but absolutely adored in Saxony. He’s their rockstar celebrity and Dresden celebrates him and his works everywhere.

(He was also called “The Strong” because he was; basically, imagine Arnold Schwarzenegger crossed with Louis XIV, then crank it to 11.)

MarkJanuary 14, 2014 at 10:31 am

The O-Ring model assumes that for production, talent is multiplicative in groups, so we should try to construct all-star teams (and that it’s best to have assortative matching). But that specific production function doesn’t always apply.

Building a sports team out of all stars has only worked a few times in my recollection: the Detroit Red Wings a couple times, the Yankees, and the Miami Heat. There were a number of failures (the LA Lakers, and, um the Yankees). Also, the welfare of the sports league may not always correlate with the outsize success of a single team: see parity in the NFL, for example. The closest thing to a long-running high quality firm, the New England Patriots, feature great talents at quarterback and coach that are then complemented by parts that are not of the same quality.

Perhaps an information economy relies less on production as a series of steps and more on scanning a competitive landscape for opportunities. Here, different agents may bring diverse viewpoints for scanning the landscape, and “average quality” but diverse agents can outperform high-quality but uniform agents. This is without considering the effects of multidimensional quality, but I should watch more videos and read more papers before speculating on that aspect.

I don’t know how many economists we have in the world, but it seems to me that we have an abundance of very well educated people. My question is: why is the world economy in such a mess with, what seems to me, no real solutions in the future. If scholarship only results in debate and not action, it really serves no purpose.

derekJanuary 14, 2014 at 10:36 am

It would not be a historical anomaly if we watched all the best and the brightest follow some well educated fool into the abyss.

WillittsJanuary 14, 2014 at 11:31 am

Aside from well-educated fools such as Woodrow Wilson, policy is more about politics than about wisdom and learned opinions.

Our founders were the last philosopher kings.

TomJanuary 14, 2014 at 11:02 am

The so-called “information economy” is just the pre-industrial rent-seeking economy. “Production” is simply defined as equivalent to the compensation received with no distinction made for rent. With “production” simply measured by compensation, higher compensation necessarily means that someone “produced” more even if there’s been no change or even declines in other variables.

whatclaptrapJanuary 14, 2014 at 11:30 am

Oh really, it has nothing not do with “talent” but with the power of the new “Globalist Nomenklatura”. Yellen, Bernanke and their like have their position by being in that Nomenklatura. She is an apparatchik, and of the financial wing of it, and it is merely her turn. That is it.

How this elite got to where they are is quite a tale, but that tale has little to do with objective “worth”; this false elite has in fact have usurped power from real and actual “elite”. It has taken generations, but they have almost sucked dry the wealth and the culture of that true elite. They will not replenish it with anything worthwhile. Such is the nature of their “abilities”.

The fact that Obama put up Fischer, a traitorous act if there ever was one, shows clearly that a) he just wants to poke another finger in American’s eye, b) that the project to destroy America continues apace and unabated, and c) who is really calling the shots in this country. It most certainly has nothing to do with anything remotely connected to “talent” or “competence” in any high meanings of the terms. One need look no further than the destructive “policies” of Bernanke or Greenspan to see this. This is just more of that.

It is about mere “cleverness”: the ability to lie, dissimulate, steal and worm one’s narcissistic way up the ladders of the Nomenklatura.
Witness the fact that Michelle Obama “graduated” from Princeton or that Bill Clinton was a Rhodes Scholar. This tell one all one needs to know about this lot. A meritocracy? A ‘mediocrity” would be more apt.

You should be shocked and outraged by such an appointment; you should not be an apologist for it. You should be shocked and outraged by the conquest of government by the current crop of Wall St. crooks; you should not carry their water.

As for being some sort of “feminist” triumph, well it is more an example of the decadence wrought by feminism rather than the expansion of opportunities for women. Yellen could well preside over the destruction of the US dollar as the world’s reserve currency. Some opportunity.
Some “accomplishment”. She will continue Bernanke’s generational theft, but remember that it is not her descendant that will suffer.

Real wealth creation, real innovation? Real civilization? She is incapable of any of these, as are all feminists. As the country falls so far down that it cannot get up, the lies of feminism–and that of all of the institutional left–will be abundantly clear to even the dullest eye–perhaps even yours.

Moreover, in the history of civilizations, the apparatchiks of the FED and their owners in in the financial sectors rank as ciphers. Given the amount of damage that they have done, we should be dismantling the FED and radically reducing the money crowd. In fact, the whole of the money center banks and the shadow banking system in this nation should be carted off to jail. They are destroying our future. How clownish–and how servile–to consider them “superior” in any way. History will see them for the vipers that they are, though unfortunate it may Asian man who write that history. They will also note how supine we were in the face of such scum, no doubt.

People like Bernanke, Yellen and Fischer are nothing but parasites.

Lastly, you notion about the “value” of the current crop of CEOs, and their “decision making” talent sis isible. It certainly shows that you have never been near the higher circles of the corporate world and understand little of how they work.

The current crop of CEOs are a rather dull lot, and are reeling from the global change they themselves instigated. Their “decisions” have been endlessly stupid and cowardly, the hollowing out of American industry and shipping off their factories to their civilization’s major rival being up there at the top of their signal acts of stupidity and cowardice. Some braniacs. Some “talent”.

This is why America makes so little of value. This is why we have this monstrously oversized “financial sector”, which, BTW, produces nothing but frauds like Yellen. This is why we have the ascendancy of “financial engineering” over actual engineering. This is why we have clowns like Bernanke and Yellen held to be “talented”. this is why we have this hideous, PC “popular culture” crippling our young. It cannot go on like this for even a generation more before it all falls apart.

You would see this if you where not blinded by your Jewish chauvinism.

Yes it is true that there is no such thing as equality, and that is a very good thing, but the examples that you give amply demonstrate that you to not understand what true superiority and true accomplishment actually consist of.

WillittsJanuary 14, 2014 at 11:35 am

Wow, quite an effective rant. I’m sold on this concept of mediocracy. I’ve seen it everywhere.

djmJanuary 14, 2014 at 11:53 am

Serious viral potential here.

PopeyeJanuary 14, 2014 at 12:19 pm

you to[sic] not understand what true superiority and true accomplishment actually consist of.

No evidence from your long comment that you understand this either. From what I understand you want to go back to the good old days when… what? Rich powerful people weren’t frauds?

BlutoJanuary 14, 2014 at 1:08 pm

The good old days was when men built their own empires. This age of appointing well-connected people into positions where it’s almost impossible not to make a fortune… is not meritocracy.

1. Admission to an elite Ivy-League school: well documented as “not a meritocracy”
2. Your network of friends and family at time of graduation from said elite school: “not a meritocracy”
3. Appointment to an open seat in an industry in the stratosphere of the US economy: “priceless, and not a meritocracy”

PopeyeJanuary 14, 2014 at 1:48 pm

This is just more bitching about how everyone today is a FRAUD, with minimal reference with how things were back in the day. Are you just pining for the robber barons? There are plenty of rich people today who have amassed ridiculous wealth from relatively modest origins.

By the way, Harvard has been around since 1636. I’m pretty sure it’s more of a meritocracy now than it was in the good old days. John Hancock, John Adams, John Quincy Adams, Rutherford B Hayes, Theodore Roosevelt, and Franklin Roosevelt all attended Harvard. It’s an amazing coincidence that two Harvard grads named Adams and two Harvard grads named Roosevelt managed to be elected President.

ThomasHJanuary 15, 2014 at 9:08 am

Whatever produces a rant like this must be good policy. Maybe we should forgive Bernanke for failing to maintain ngdp in 2007-2008.

R Richard SchweitzerJanuary 14, 2014 at 11:49 am

But, Alex, you do not cite the recession (and to some degree “repressions”) of individuality which has accelerated since about 1960 in the U S; and earlier in Europe.

Joseph WardJanuary 14, 2014 at 12:40 pm

This whole second most powerful person in the world thing is a bit much. She has a vote on the FOMC. It is important, but I think we give too much credit to the chairman/woman.

WillittsJanuary 14, 2014 at 5:27 pm

Do you doubt that Volcker, Greenspan and Bernanke didn’t lead the chorus?

John Taylor said that Yellen would be more inclined toward rules based monetary policy, and I think he is dead wrong. Yellen will sing whatever song Obama wants her to sing, and a politician’s gut reaction to every bit of bad news is to exercise their discretion, good or not. Romer, who is a much better economist than Yellen, got slammed for carrying Barry’s water.

Joseph WardJanuary 16, 2014 at 12:33 pm

I would argue that Bernanke definitely didn’t lead the chorus. I don’t know if he ever had a unanimous decision. The Fed Chairman who started the whole unanimous board was William Martin, and that was mostly by starting more rigorous research and having board members present their evidence ahead of the meetings. I think overall, for several reasons, the days of unanimous consent behind the Chairman/woman are over.

KLOJanuary 14, 2014 at 12:44 pm

Fischer’s best quality is his uncanny ability to get great jobs. To get these jobs, one must tacitly promise not to try to do overly much when actually in the position. While Fischer has a long list of titles that even would impress even the most overtitled minor European prince, his list of actual accomplishments are few and far between.

I apologize for the following comment from a fringe extremist who hates America:

“So, likewise, a passionate attachment of one nation for another produces a variety of evils. Sympathy for the favorite nation, facilitating the illusion of an imaginary common interest in cases where no real common interest exists, and infusing into one the enmities of the other, betrays the former into a participation in the quarrels and wars of the latter without adequate inducement or justification. It leads also to concessions to the favorite nation of privileges denied to others, which is apt doubly to injure the nation making the concessions by unnecessarily parting with what ought to have been retained, and by exciting jealousy, ill will, and a disposition to retaliate in the parties from whom equal privileges are withheld; and it gives to ambitious, corrupted, or deluded citizens (who devote themselves to the favorite nation) facility to betray or sacrifice the interests of their own country without odium, sometimes even with popularity, gilding with the appearances of a virtuous sense of obligation, a commendable deference for public opinion, or a laudable zeal for public good the base or foolish compliances of ambition, corruption, or infatuation….

“Against the insidious wiles of foreign influence (I conjure you to believe me, fellow-citizens) the jealousy of a free people ought to be constantly awake, since history and experience prove that foreign influence is one of the most baneful foes of republican government. But that jealousy, to be useful, must be impartial, else it becomes the instrument of the very influence to be avoided, instead of a defense against it. Excessive partiality for one foreign nation and excessive dislike of another cause those whom they actuate to see danger only on one side, and serve to veil and even second the arts of influence on the other. Real patriots who may resist the intrigues of the favorite are liable to become suspected and odious, while its tools and dupes usurp the applause and confidence of the people to surrender their interests.”

– George Washington’s Farewell Address

chuck martelJanuary 15, 2014 at 7:02 pm

Another quote from the Daddy of the Country:

The Expedition you are appointed to command is to be directed against the hostile tribes of the Six Nations of Indians, with their associates and adherents. The immediate objects are the total destruction and devastation of their settlements, and the capture of as many prisoners of every age and sex as possible. It will be essential to ruin their crops now in the ground and prevent their planting more.

I would recommend, that some post in the center of the Indian Country, should be occupied with all expedition, with a sufficient quantity of provisions whence parties should be detached to lay waste all the settlements around, with instructions to do it in the most effectual manner, that the country may not be merely overrun, but destroyed.

But you will not by any means listen to any overture of peace before the total ruinment of their settlements is effected. Our future security will be in their inability to injure us and in the terror with which the severity of the chastisement they receive will inspire them.

Fitzpatrick, John C (1931–1944). “Instructions to Major General John Sullivan”. The writings of George Washington from the original manuscript sources, 1745–1799. Electronic Text Center, University of Virginia Library. Retrieved 2007-11-14.

MarieJanuary 14, 2014 at 1:22 pm

What these folks have is above average intelligence paired with extraordinary specialization in an area currently highly valued by the ones who have the money.

Which makes them seem like ubermensch compared to all the folks who have specialized in their field who have average intelligence.

Is that hyperspecialization good? I’d question whether it’s good idea to put people in charge of monetary policy who maybe can’t grocery shop for themselves. But I’m ignorant enough to not want a few well-connected career economists running huge chunks of the global economy, in any case.

chuck martelJanuary 14, 2014 at 1:33 pm

Above average intelligence, at least in the academic/financial/number crunching sector, doesn’t guarantee success at planning and administering trillion dollar economies. It’s only been 24 years but evidently everyone has forgotten the experiences of the Soviets.

BrianJanuary 14, 2014 at 2:17 pm

This might be the most important post of the new year

lxmJanuary 14, 2014 at 2:28 pm

Fortunately, the year has a long way to go.

Alexei SadeskiJanuary 14, 2014 at 3:07 pm

No comment from Sailer??

EngineerJanuary 14, 2014 at 3:32 pm

I would guess that fewer than 10 decisions made billions of dollars of difference

No way. Gates in his heyday gave MS both vision and charismatic leadership. Jobs was the same way.

BlutoJanuary 14, 2014 at 3:50 pm

Those are examples of CEOs who built their own empires. They weren’t part of the inbred paper-credential-ocracy that dominates power positions in the US today.

PopeyeJanuary 14, 2014 at 6:13 pm

Gates and Jobs built their empires less than a generation ago and their companies are still going strong. These are your examples of elites from a golden age? Why not bitch about how Silicon Valley isn’t producing Mark Zuckerbergs any more, or muse wistfully about the golden age when some grad students were able to build a company like Google from scratch.

PennStaterJanuary 14, 2014 at 4:30 pm

Dear Antisemites, please drop your ‘Woe is Me’ schtick. The Tribe has every right to disregard you when you worship an admitted liar like Marc Weber and (probable) liar Kevin MacDonald. What a pretty Wikipedia bio is MacDonald’s. Was he lying over 16 years? American Jews didn’t aim to tip America’s ethnic balance through immigration? Did MacDonald all along know it?

MacDonald has particularly been accused by other academics of academic fraud, saying that he has promoted anti-Semitic propaganda under the guise of what he says is a legitimate and academic search for truth.[26] He has also been accused of misrepresenting the sources he uses in that regard. Fenris State University professor Dr. Barry Mehler cited for example a quote from a 1969 dissertation by Sheldon Morris Neuringer titled American Jewry and United States immigration policy, 1881-1953 where MacDonald surmised that when Neuringer noted Jewish opposition in 1921 and 1924 to the anti-immigration legislation at the time was due more to it having the “taint of discrimination and anti-Semitism” as opposed to how it would limit Jewish immigration, MacDonald wrote, “…Jewish opposition to the 1921 and 1924 legislation was motivated less by a desire for higher levels of Jewish immigration than by opposition to the implicit theory that America should be dominated by individuals with northern and western European ancestry.” “It seems to me Mr. MacDonald is misrepresenting Mr. Neuringer in this case and I posted my query hoping that a historian familiar with the literature might have a judgment on MacDonald’s use of the historical data,” Mehler wrote, citing other examples.[27]

PennStaterJanuary 14, 2014 at 4:37 pm

By chance, has anyone read or have access to Neuringer’s dissertation? The time’s come for The Culture of Critique to undergo a literary audit. I’m curious whether Neuringer’s thesis matches Dr. MacDonald’s history of Jewish immigration. If the answer is ‘No’, when does Mac make a confession of guilt a la Marc Weber?

JohnHagerJanuary 15, 2014 at 1:12 am

Wow – Barry Mehler’s critique was literally sourced from an e-mail. It’s amazing those claims have been allowed to stand on Wikipedia. Especially coming from a guy like Mehler.

>Hereditarians such as Glayde Whitney have criticized Mehler for employing what they perceive as ‘inflammatory’ and ‘inquisitional’ anti-racist rhetoric in an effort to spur activism and discredit controversial scientists through the ‘manipulation’ of popular opinion.

What does this article have to do with Kevin MacDonald, anyway?

Anyway, below are some scholarly reviews of his work you ought to consider.

Professor Kevin MacDonald’s Critique of Judaism: Legitimate Scholarship or the Intellectualization of Anti-Semitism?http://ge.tt/2KaGdO01/v/0?c

PennStaterJanuary 15, 2014 at 7:38 pm

Barry Mehler’s critique was literally sourced from an e-mail.

If Mehler’s lying, why doesn’t MacDonald prove it and have Wikipedia take it down?

Mehler’s directly sourced his critique from MacDonald’s references. His line by line comparison with MacDonald’s words revealed this mismatch. Why no match? Are there more discrepancies? Dodge it all you may, his Wikipedia biography is one of the first results returned by Google. Address this now or later.

Deeper digging into his resources is warranted if fans such as you want to preach his word from the rooftops as Gospel.

Lieberman has also written that MacDonald even dishonestly made up lines from the work of British Holocaust denier David Irving. Citing Irving’s Uprising which was published in 1981 for the twenty-fifth anniversary of Hungary’s failed anti-Communist revolution in 1956, MacDonald asserted in the Culture of Critique, “The domination of the Hungarian communist Jewish bureaucracy thus appears to have had overtones of sexual and reproductive domination of gentiles in which Jewish males were able to have disproportionate sexual access to gentile females.” Lieberman, who also noted that MacDonald is not a historian, debunked those assertions, concluding, “(T)he passage offers not a shred of evidence that, as MacDonald would have it, “Jewish males enjoyed disproportionate sexual access to gentile females.”[30]

Laurence Loeb of the University of Utah (writing for the Jewish Folklore and Ethnology Review) called Kevin MacDonald’s book “A People That Shall Dwell Alone” a “tour-de-force” and a “watershed contribution to the understanding of Judaism and Jewish life” based on a “cautious, careful assembling of evidence.”

Robert FosterJanuary 14, 2014 at 4:56 pm

The last paragraph of this shrieks, “hubris.”
As a remedy, I suggest Martin Wolf’s article, “Failing elites threaten our future,” in FT.

ErikJanuary 14, 2014 at 5:14 pm

“Yellen-Akerlof are the 1% of the 1% and all that political and cultural achievement concentrated in one family is an example of the growth of inequality.”

And that 1% of the 1% have had zero children so far (at least as far as I can tell from the Wikipedia articles on them), and at their age are rather unlikely to have them. Fischer, though, has three.

FCJanuary 14, 2014 at 7:14 pm

“His son Robert Akerlof teaches Economics at the University of Warwick.”

This is a polite company so it is not mentioned or mentioned obliquely but here it is: right now on Fed Board 4/6 are Jews. After Fischer and Brainard are confirmed (as no one doubts they will), 5 out of 7 will be Jewish. Come on, people, there is no sensible definition of meritocracy that would enable such result given the proportion of Jewish population and the known cognitive edge that Jews have.

“Inbred clique” is only a statement of fact. “Ethnic nepotism” is an explanation. Everyone does it – why not admit it at last?

John J. JohnsonJanuary 14, 2014 at 10:38 pm

Thank God us retard goyim aren’t allowed to run our own institutions.

MPSJanuary 14, 2014 at 11:14 pm

I think the sky-high demand for a very small number of people is a symptom of a failure of credentialing.

Imagine, for the sake of argument, that we had a series of courses and tests (these don’t have to be textbook-based courses or written exams… I have in mind any scaleable program for teaching and evaluating people) that could in the end give someone a score that gave a perfect ranking of their talent relative to everyone else with respect to a job like CEO. I find it hard to believe that astronomical wage disparities could survive this. The distribution of natural talents among humans is broad, but it seems incredible to me that it is so broad that when we look at the entire world and want to select the top few hundred or so, that we have such wide variation in natural talents among them. Instead I believe what we have is vastly unequal access to specialized training, and vastly unequal access to meaningful credentials.

I think this is especially so with something like CEO. So far as I can tell, being a great CEO does not really require truly exceptional raw talents; for instance I’m sure successful CEOs are intelligent but I’m doubtful a sizable cohort of them would mostly score in the top 1 in 10,000 in any cognitive skills test with that kind of resolution. What makes successful CEOs in such high demand is the “credential” of having demonstrated their success at the job. Directors are extremely risk-averse with the appointment of CEOs, so they much prefer to pay a huge premium for someone with demonstrated success than take a chance with someone who could very well be significantly better but who doesn’t have that all-important credential. Meanwhile, access to the kind of experience that serves as a good credential for potentially being a good CEO is very tight; you basically have to have been a CEO before, or another very high-ranking executive (with similarly tight access to the appropriate credentials).

I think one could build evidence for this picture by looking at startups. Startups don’t have the luxury of paying huge dollars for their CEOs. How many startups, when they get access to large capital, immediately ditch their current CEO to hire one of these top-demand CEOs? If we are to believe claims about the exceptionally rare talent needed to be a successful CEO, and we also believe that having the vision to create a product like Google or Facebook is exceptionally rare, then we are faced with the most improbable of circumstances that the same people who had the visions for those products also have the talents to be the CEOs of the respective companies. One might say that the vision and the talent at being CEO are the same thing, but I say this is vague meaningless fuzzy talk. Think in practical terms about what it meant to build the Google or Facebook and think about what CEOs of any number of large companies do and I think you see these are VERY different things.

Anyway, I think there is a lot of talent out there to do all sorts of things, but we have scarcity of resources devoted to developing talent and scoring it in a way that we can reliably trust in people’s abilities to perform different jobs. We instead rely heavily on experience at jobs that are strictly gated by other factors and this exaggerates demand for talent, more extremely the higher you climb.

colinJanuary 16, 2014 at 6:02 pm

the story i’ve heard from venture capital guys is that a lot of startups come up under one set of founders but that those founders, who worked great for the first few years when it was small, often are ill suited to running a large business. so an experienced businessman is brought in to actually manage the ship once it gets going. it’s not surprising really to think that the skill of starting and running a very small, skeleton startup doesn’t necessarily correlate very well with the skill of running a large bureaucratic institution. also, and perhaps equally important, a lot of startup founders find that they really don’t like running large businesses. the demands are very different I gather. there’s also the phenomenon whereby venture capital guys try very hard to kick out the founders or push them aside because so long as the founders stick around they tend to exert a very large control over the company. the venture guys want to get as large a piece of the company as they can for their initial investment and then sell the company to a larger company (the IPO market being pretty bad). keeping the original founders (it’s almost never one person. usually two or more men or two or more women) means they will put up a fight, whereas if the venture guys have replaced the founder with a puppet they can do what they want.

just a guyJanuary 14, 2014 at 11:36 pm

Two points:

1. Federalism is still alive and well in the United States. You don’t need to go to Harvard to become a local power broker in a small town; in fact I think it would hurt your prospects. You can go to the state university and be pretty highly respected by employers in your state. These aren’t power elites, you say? Well status is context and environment dependent, and in the end, the sheriff in the small Georgia town still runs the show.

2. Yellen might be the most powerful woman in the world, but if she screws up or we enter another recession, expect her to be dragged in front of the Senate and grilled by (to you Jewish conspiracy folks, gentile) representatives. The situation worsens, and her political career is over and Fed independence is drawn into question.

Power is pretty distributed in today’s United Stated. Perhaps this will change as inequality rises.

georgesdelatourJanuary 15, 2014 at 8:11 am

In 1956 Eisenhower ended the British-French invasion of Suez by ordering his Treasury Secretary to sell part of the US government’s Sterling bond holdings. The ensuing international selling of Sterling threatened the British government with imminent bankruptcy. So Britain abandoned the invasion. This shows that US governments sometimes decide to use their economic levers for foreign policy purposes, even against supposedly close allies.

What if the US government has a disagreement with Israel, and decides to use a comparable economic lever to try and force Israel’s compliance with its will. Can Americans feel confident that the Israeli Fischer will implement such an anti-Israel policy to the best of his ability, and without communicating confidential US information to Israel?

CBBBJanuary 15, 2014 at 9:39 am

Absolutely not. But it’s always amazing how economists consistently ignore the realities of power politics and warfare in the world. This goes along with how economists often say “manufacturing capability doesn’t matter”. At the end of the day the top policy makers in the US need to be on the side of the US.

Well, sure, nobody seems to know exactly whose side Stanley Fischer is on, but that’s not the point. The point is that Fischer has an extremely high IQ, so we ought to trust him. It’s like Ahmad Chalabi and his U. of Chicago Ph.D. in math — what could possibly go wrong?

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Scott W. SomervilleJanuary 17, 2014 at 2:01 pm

The average American male would have gotten the gist of this article in one paragraph if you had used just one good sports example. That’s where the bidding wars for superstars are most obvious to most people.